Larry Fink on the Russia-Ukraine conflict
SAMARA COHEN : welcome to The Bid, where we break down what ‘s happening in the markets and explore the forces changing investing. I ‘m samara Cohen, Chief Investment Officer for ETFs and Index Investments at BlackRock and your host today. Over the past few weeks, the russian invasion of Ukraine has caused a huge humanitarian return and sent ripple effects across the ball-shaped economy. On this episode, we ‘re joined by our Co-founder, Chairman, and CEO of BlackRock, Larry Fink, to get his position on what ‘s happening and how it ‘s affecting the global markets. Please keep in mind, we ‘re recording this on Friday, March 11, as the conflict enters its third week. Larry, welcome back to The Bid.
LARRY FINK : thank you, Samara. It ‘s great to be hera .
SAMARA COHEN : Larry, the world has changed dramatically over the past two weeks. And although the universe has unfortunately seen dispute and wars break out over the past 20 years, this one feels different. Why do you think that is ?
LARRY FINK : well, we ‘ve actually had many wars in the world over the final 20 years, in the death 30 years. But this is different because we have a principal nuclear power invading a neighbor. And in addition, this nuclear power, Russia, it actually invoked the words ‘nuclear ‘ as an offensive moment. And it was motiveless. We were witnessing the awful actions of a military war. We are witnessing each here and now of the tragedies that are occurring throughout Ukraine, the humanistic calamity of 2 and 1/2 million migrants, in which one-half of them immediately are children, the shift of millions of people .
It ‘s threatening the psyche of the earth in so many ways because the worldly concern benefited, credibly a much as any major geopolitical issue, when the Soviet Union broke apart. And it was the ending of the Cold War. And we were able to have this enormous peace dividend. So the peace dividend is over .
Over the final 30 odd years now corporations worldwide expanded geopolitically and expanded in different geographies. We built this whole foundation of globalization. We built these global capital markets. But the basis of how we constructed the ball-shaped model is nowadays over. It ‘s broken down. nowadays we ‘re trying to reassess what does it mean for the future. And we do n’t have enough answers even because we do n’t know the consequence. How do we move forward as companies, as countries. I ‘ve been on the calls with many CEOs today and yesterday and every day since the invasion, and I ‘m hearing from fear to business, but most universally is this uncertainty. What does it mean ? What does it mean for globalization ?
SAMARA COHEN : Let ‘s talk a little bit more about your bespeak on global capital markets. Russia was given access to global capital markets as the universe emerged from the Cold War. And now Russia is pursuing a traditional war, but the reception of the capital markets is anything but traditional. So what are your thoughts on the markets ?
LARRY FINK : good, as I wrote in my chief executive officer letter earlier this year, I stated that access to the global capital markets is a prerogative. It is not a justly. And I think this has been exemplified by the behaviors of the private sector. We ‘ve created in two weeks an enormous change. And we ‘re witnessing now that an economic war can be angstrom buttery as any imagination could ever achieve. This economic war is not something that one should take lightly. It changes the future of Russia. And I do n’t know how we reverse this. It is in many ways a in truth important statement to see how corporations are in truth embracing stakeholder capitalism hera because sol many companies have been bombarded by questions by their employees, by their clients, by different customers cosmopolitan. What are you doing about this ? And the behaviors of the private sector have been precisely as broad, impactful as the governmental sanctions .
thus when you think about it from the government sanctions to the impact by the secret sector of the abandonment or cessation of occupation in Russia, it in truth does show the power of the capital markets. And now denying capital, it shows the power of, I would say, capitalism. We are going to expect to see in every beginning quarter consequence by many companies that they ‘re going to have an deterioration charge from the abandonment of Russia. It ‘s a erstwhile thing. So it ‘s recalibrating a fortune of companies. I applaud the fortitude of management teams of companies and boards in these actions. I think this fair truly shows the power of one capitalism, but the might of the ball-shaped capital markets, but importantly, the power of capitalism focusing on their stakeholders .
SAMARA COHEN : This is a ball-shaped economic war. But the main theater of war is actually happening in Europe. What will be the impact for global growth, but more specifically european economic emergence ?
LARRY FINK : What you ‘re seeing is the economic response that is then immediate and so quick. And I think it ‘s going to be indeed impactful. And I do believe it is going to — I think this is a admonisher to every state, as it is a reminder of every ship’s company, access to capital is a privilege, not a correct .
In the short political campaign, it ‘s obviously quite impactful on the negative side. Consumers are going to be feeling the pain of rising energy costs and rising food costs. But last, I am affirmative about what it means for Europe. Samara, post-invasion, we ‘ve seen a total deepen in the behavior throughout Europe. The fusion of Europe feels more real right now than it did ahead. Germany has announced they ‘re going to raise their defensive structure spend to 2 % of GDP. This is actually what the Americans asked for a few years ago under President Trump. Hopefully other parts of Europe will be advancing. They ‘re moving towards more renewables, particularly in parts of Italy where the sun is pretty prevailing there. And thus all of this means more fiscal spend, more deficit spend. And I look at this as a real internet cocksure. And so, in the short guide, we are going to have slowing ball-shaped economies. But in the long run, it ‘s going to be offset by rising fiscal stimulation again, as we witnessed during the COVID years, how much fiscal stimulation we saw to stabilize the global economy after a pair shocks in the economy and negative GDP .
I think we have a number of years of recalibrating what this all means. But the Europeans in truth have been quite aggressive in reasserting themselves to be less reliant on Russia. They ‘re reasserting themselves through fiscal stimulation. And I think you ‘re going to see monetary policy be much more muffle than we thought prior to the invasion .
SAMARA COHEN : Larry, you mentioned the impact for companies in the individual sector who are taking actions beyond the government sanctions. How do you think what ‘s unfolding nowadays adds to the preexist concerns over supply chain issues ? Do you think that there ‘s a growing concern to watch around supply chains ?
LARRY FINK : I think this is going to be the biggest question that is going to be discussed, the biggest topic that we ‘re going to be discussing. then, we are refocusing on our dependencies in Russia. I think the whole earth is focusing on dependencies now, the dependencies to China, as a fabricate and assembly. I besides believe the universe ‘s refocusing on the dependencies on the US dollar. And I ‘ve heard from a couple of finance ministers, should the earth be this dependent on one currency ? And then I actually believe we are going to reassess everything. A draw of this is more of an anti-global position .
But let ‘s get back to the supply chain. I think as companies reassess their dependencies, they ‘re going to be saying that possibly we are besides dependent on one place. possibly we ‘re besides dependent on China or something else. And they ‘re going to be reanalyzing their issue chain. I talked to one chief executive officer today that has systematically been mitigating their dependencies on China. And they ‘ve been moving more and more provision of chains into Mexico. And he said, now our biggest generator of manufacture is Mexico than China. So we ‘re seeing this wholly recalibration. And this recalibration is going to very determine how we go forward .
SAMARA COHEN : Larry, I think related to supply chains, you used the word deglobalization a couple of minutes ago. Can you say a little bite more about that path and what you mean ?
LARRY FINK : well, as I said, with a peace dividend of the conclusion of the Cold War, we were able to build a global network. And globalization was the key, I would say economic policies, that people expanded and built. And globalization actually had many positive benefits. right now it ‘s not being discussed. More human beings were lifted out of poverty over the last 32 years than any period of fourth dimension ever. And that was because of globalization .
We learned from COVID that provision chains were possibly merely good in very efficient times. We learned that many provide chains would not function vitamin a well when people were — when COVID hit a nation and they had lockdowns and they could not have workers at a factory or in the transport components, and we witnessed huge supply chain issues. now much of the provision chain issues we witnessed was as people were more in outback make, more and more people changed their consumption patterns off from services. We traveled less. We went to fewer restaurants during that menstruation of time. But we spent our money on capital goods. And so much of the provide chain issues was we miscalculated how a lot need there was going to be on so many products .
I think now with looking at the dependencies of Russia, focusing on the dependencies on early parts of the populace, whether it ‘s at China or somewhere else, I think there ‘s another reappraisal of the supply chains. And does it mean a deglobalization ? probably it does. When you talk about onshoring factories or nearshoring factories, that in itself is a deglobalizing procedure. And so, because of the heighten of patriotism, the advance of geopolitical tensions, and the necessitate to have better provision chains, it means everybody ‘s bringing them closer to where demand is. And that is a big reversion in how businesses built their platforms and businesses. And sol a lot of that is being reassessed. And it does on the margin bastardly less globalization .
SAMARA COHEN : Does this rewire of the global economy that you ‘re describing impact your assessment or the CEOs and policymakers that you ‘re talking to, their appraisal of inflationary pressures here and how businesses and consumers will navigate them ?
LARRY FINK : You know, Samara, post-World-War-II United States economic policy was based on consumerism. It was the initiation of — and that was coupled with globalization. And so, we were able to maybe be active manufacture somewhere where we were able to provide cheaper products, more products to more Americans. I would say erstwhile in the last 10 years that whole foundation of providing the cheapest products to more Americans has now been reconsidered. Jobs are now considered to be more important than cheaper prices. I think that is inflationary by itself .
I ‘ve always said, if we are going to move to a decarbonize populace without fresh engineering that is highly inflationary, we are now witnessing that today. This is why I ‘ve always been saying a transition from hydrocarbons to something more sustainable has to be done in a fair and merely way. And quite honestly, even before the russian invasion, many countries were focusing on provide extenuation versus need extenuation. And so, we were witnessing rising energy prices even before the russian invasion. All of these are more incrementally inflationary, and what ‘s much more inflationary would be if one has to now re-footprint add chains possibly to a higher price area, but it ‘s nearer, with more consistency, with more certainty. All of this leads to higher ostentation and that ’ s one of my bigger worries nowadays .
now, in the long footrace, though, as we build out these excess add chains, as we become less dependent, in theory this actually, at the back end, could be deflationary. And a supply shock that we ‘re witnessing is hard for any central bank to mitigate. then if you believe that much of the inflation is because of supply shock, you ‘re going to credibly expect fewer central banks tightening, even in this inflationary environment because that provide electric shock, ultimately, can be worked out. Maybe it ‘s three years, or four years, or five years, but it can be worked out .
And let ‘s be well-defined, higher department of energy prices accelerates the demand for decarbonization, accelerates the need for EV vehicles. And indeed that ‘s a means you mitigate long-run need through that action. And so all of this is equalizing. We may be in a period of time of higher inflation that is going to be identical damaging for those who least could afford it. Higher inflation is destructive for the entire emerging universe. This is why I have constantly said, it has to be fair and merely. And right now we ‘re not in a fair and fair period of time .
SAMARA COHEN : Larry, thank you so much for your meter and for your insights and for joining us nowadays on The Bid .
LARRY FINK : Well, I want to thank everybody for listening. These are frightful times, what we ‘re witnessing in these humanist disasters. But we all should be bright that as human beings we do find solutions. And this has not abated my long-run optimism, that we find solutions, we mitigate problems. And through that procedure, we have a better future.
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SAMARA COHEN : thank you, Larry .
LARRY FINK : Thanks, Samara .